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RDC goes to court

01 Jul 2007

ON JUNE 14 Railroad Development Corp and its affiliate Ferrovias Guatemala filed a claim for arbitration against the Republic of Guatemala with the International Centre for the Settlement of Investment Disputes in Washington DC, as provided for under the Central America - US Free Trade Agreement (Cafta).

FVG is in dispute over the terms of its 1998 concession, and last year the government stepped up the pressure by declaring the rolling stock agreement lesvio, or 'against the interests of the state' (RG 11.06 p697). Since then, FVG has suffered mounting losses due to its inability to obtain credit and the growing unwillingness of its freight customers to do business.

According to Chairman Henry Posner III, 'RDC made heroic efforts to restore and operate the completely-abandoned national railway, and was on a solid financial path despite the failures of Ferrocarriles de Guatemala to meet its contract responsi-bilities. But the declaration of lesividad effectively derailed our business prospects.'

Accusing the government of 'the worst kind of political manipulation', RDC is seeking compensation in excess of US$65m. Posner says 'RDC is fortunate that Cafta provides a fair and impartial forum outside the Guatemalan legal system'. The claim is the first to use the investor-state dispute resolution mechanism under Chapter 10 of the agreement. RDC has lodged three claims: wrongful indirect expropriation, failure to accord a Minimum Standard of Treatment, and failure to provide treatment equal to that afforded local investors.